A new funding agreement between the EU and the World Bank is unnecessarily complex and opaque, the chairperson of the European Parliament’s powerful budgetary control committee said Wednesday.
The arrangement, first reported by POLITICO, was formalized in April 2016 and negotiated by the office of former Commission Vice President Kristalina Georgieva, who is now CEO of the World Bank. It has raised Parliament and Commission concerns about a potential conflict of interest.
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“My impression is that this report was very complicated and not particularly transparent, and I don’t understand why this has to be the case,” German MEP Ingeborg Grässle, chair of the European Parliament’s budgetary control committee, said during a hearing on the issue. “As I understand it, the World Bank has a stronger role than before and there is the risk that other international institutions will demand the same.”
The new payment structure replaced a flat management fee of up to 5.5 percent on all EU contributions to the D.C.-based institution with a more complex formula.
For projects in which the World Bank plays a managerial role rather than directly running the project, the EU is charged a sliding fee of between 2 percent and 5 percent depending on the size of the project, plus an additional 17 percent of the cost of any World Bank personnel and consultants working on it. Projects directly carried out by the World Bank are subject to a 17 percent charge of the cost of personnel and consultants.
According to the text of the Commission’s decision to change the payment structure, in some cases this could result in payments exceeding a 7 percent cap on management fees, which is forbidden by EU financial regulation.
In responding to Grässle’s questioning, Olivier Waelbroeck, director of the Central Financial Service of DG Budget, acknowledged that the new system is more complex. He also said that the new arrangement could not be negotiated but had to be accepted as drafted by the World Bank.
“This new cost recovery policy was in a way imposed on us, we could not influence it from the outside,” he said.
Grässle said that the Commission had shown her samples calculations that showed that the new formula would lead to reduced fees. To her, this implied that the EU had been contributing too much.
“It’s a complete enigma to me if it was an advantage to us why we did not do it before, and why did the World Bank offer it us,” she told POLITICO after the hearing.
The World Bank said the new charges agreed to by the EU are in line with what other donors are paying, and an official from Georgieva’s office dismissed concerns of a conflict of interest.
“Vice President Georgieva was not involved in negotiating this framework agreement with the World Bank,” an official who worked with Georgieva at the Commission said last year. “Her only role was to sign the final agreement on behalf of the Commission upon the request of President [Jean-Claude] Juncker and respecting the appropriate level of institutional representation.”
The EU contributes some €400 million a year to World Bank projects designed to reduce poverty, boost development and combat climate change in Africa, Asia and elsewhere. The contributions also include a management fee provided to the World Bank.
Grassle will head a delegation to the World Bank at the end of May. “I will discuss transparency with the World Bank as well as this new agreement,” she said.
Florian Müller contributed reporting.
